Hold Sterlite Technologies; target of Rs 47: Emkay

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Hold Sterlite Technologies; target of Rs 47: Emkay

Emkay Global Financial Services has recommended hold rating on Sterlite Technologies with a target of Rs 47, in its October 20, 2011 research report.

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Emkay Global Financial Services has recommended hold rating on Sterlite Technologies with a target of Rs 47, in its October 20, 2011 research report.

"Sterlite Technologies, revenue at Rs 7.0bn, up 38.8% yoy led by strong growth from power segment. EBITDA at Rs 504mn declined 44.3% yoy with EBITDA margin at 7.1%. Telecom margin down 1318bps yoy. PAT at Rs 126mn was down 78.0% yoy (our est. of Rs 140), led by 44.4% and 41.8% decline in EBITDA in Power & Telecom segment, respectively followed with high interest cost. Cut EPS by 26.9%/ 8.0% for FY12E/13E to Rs 2.9/Rs 5.2 due to margin pressure in telecom segment pertaining to capacity expansion. STL reported better than expected revenues for Q2FY12, however on the EBITDA and PAT front it was below estimates. Revenue at Rs 7.0bn was up 38.8% yoy, led by strong growth of 55.8% yoy in power segment while telecom segment registered growth of 7.6% yoy. Realization in power segment improved 19.5%yoy and 10.9%qoq. Cons. EBITDA declined 44.3% yoy, due to 44.4% and 41.8% EBITDA decline in Power & Telecom segment. High fuel cost and plant stabilization is attributable to significant decline EBITDA in telecom segment. EBITDA margin at 7.1% was down 1065bps yoy. Lower EBITDA and high interest cost resulted in PAT of Rs 126mn, down 78.0% yoy."

"Volumes in fibre segment increased to 2.8mn fkm v/s 2.3mn fkm in Q2FY11, however, correction in fibre prices has led to just 7.6% yoy increase in revenues. EBITDA margin from telecom segment was down 1318 bps yoy, primarily attributed to high power and fuel cost and plant stabilization for expanded capacity. STL sold 36500MT conductors with EBIDTA/MT of ~Rs 6500 v/s ~Rs 2700 in Q1FY12. Nevertheless, overall margins improved qoq led by strong EBITDA in power segment. Total order book at the end of Q2FY12 stood at Rs 24bn flat sequentially. PGCIL which is the major contributor to company's power business has awarded orders worth Rs 2.4bn to STL. In H1FY12 company managed to do EBITDA of Rs 806mn, looking at the weak performance management has reduced its EBITDA guidance from earlier Rs 4.0bn (did not mention revised number) for FY12E. Ongoing issue pertaining to high fuel cost and fibre plant stabilization would take couple of months to settle so we have reduced our EBITDA estimates in the fibre segment for FY12E."

"Looking at the weak performance in H1FY12, we expect the pressure would prevail on the margin going forward, as well. Considering, lower EBITDA margin in telecom segment, we have revised our EBITDA est. downwards by 13.2%/ 5.2% for FY12E/13E. Subsequently, our EPS estimate declines by 26.6%/8.0% for FY12E/13E resulting in EPS of Rs 2.9/5.2 for FY12E/13E. We retain HOLD with reduced target price of Rs  47 (Rs 51 earlier). We highlight that the short-term pressures on power margins is behind us but pressure on telecom segment margin remains a concern in near term," says Emkay Global Financial Services research report.

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